Incentives and Prosocial Behavior

We develop a theory of prosocial behavior that combines heterogeneity in individual
altruism and greed with concerns for social reputation or self-respect. Rewards or
punishments (whether material or image-related) create doubt about the true motive
for which good deeds are performed, and this overjustification effect can induce
a partial or even net crowding out of prosocial behavior by extrinsic incentives. We
also identify the settings that are conducive to multiple social norms and, more
generally, those that make individual actions complements or substitutes, which we
show depends on whether stigma or honor is (endogenously) the dominant reputational
concern. Finally, we analyze the socially optimal level of incentives and how
monopolistic or competitive sponsors depart from it. Sponsor competition is shown
to potentially reduce social welfare. (JEL D11, D64, D82, Z13)